Conrad Tsang founded Hong Kong-headquartered Strategic Year Holdings in 2015 which focuses on education investments.
Prior to founding Strategic Year Holdings, he spent 13 years at Baring Private Equity Asia and set up the firm's Beijing office. Before that, he was with Merrill Lynch Asia Pacific doing equity research, focusing on media and retail sectors.
The companies he has been involved over the years include Noah Education Holdings, Minsheng Education and Nord Anglia Education. Strategic Year Holdings has invested in Kasca Education.
We thought he was the right man to school us in investing in the education sector.
The following transcript has been edited for clarity and brevity
Q How much of your portfolio have you allocated to the education sector?
As far as Strategic Year Holdings is concerned, about two-thirds of our allocation is education related across Asia – education services, training services are in that category. I will maintain it like that because we like the sector.
It's a very resilient sector, even during economic downturns. Households will not likely cut down education spending on their children, that's why this sector, in a way, is a bit counter-cyclical. When economies are turning sour, even adults see the needs to equip themselves with more skills and more qualifications. We will continue to maintain the relative percentage of the allocation to the sector.
Q Is there any country in particular that you think is interesting?
Anywhere with a big consumer market is something we allocate more to; China for sure, plus a few other countries with a big population within Asia. I think China is tilting policy towards enabling working moms to be able to work more during the daytime so that they are encouraging more daycare centres and playgroups. They hope that through this encouragement, young parents are more willing to have children without worrying about who will take care of the kids after birth.
Q How do you spot a promising education company?
Q Within the education sector, are there any promising sub-sectors?
The use of online learning in an offline environment and the resulting improvement in efficiency and cost-savings that lead to profitability is something that we are seeing being developed and should be developed across all age groups.
Q What are the risks of investing in education?
Q How do you determine when and how to exit?
Trade sale is one way to go, and IPO (initial public offering) of course when the market is buoyant. In some cases, when the exit window is not as favourable, then investors will need to engage in negotiations with companies about buybacks; but a buyback is a less desirable outcome because valuation is usually lower than via a third-party exit.
Q What’s your end-game in investing in education?
On the one hand, you generate commercial returns, on the other hand, you do something do good for the society. For high-quality education services, although they are not free, the key is, as long as the operator operates in a socially responsible fashion and that they provide high-quality services that justify the price they are charging, the consumers will be happy with that.